Metro Bank (LSE:MTRO) reported to the market on Wednesday 19 February that interim CEO Dan Frumkin will step up to full time chief executive after six weeks at the helm. Frumkin joined the FTSE 250 challenger bank as chief transformation officer in September 2019 before taking on the temporary top position.
Chairman Sir Michael Snyder said Frumkin stood out from other candidates because of his 30-year track record in retail banking and his impact since joining the company. There have been no financial updates to the market since Frumkin joined so this latter point is difficult to independently verify. Frumkin took the interim CEO position on a £690,000 salary, according to a December RNS, and enjoyed a base pay hike to £740,000 when he was announced with the top job.
According to his Linkedin profile, before Metro Bank, Frumkin spent eight years at Bermuda-based Bank of NT Butterfield & Son as chief operating officer and chief risk officer. Before that, he held senior positions at the Royal Bank of Scotland and was head of transition at Northern Rock in 2009.
Ahead of the curve
In 2010, Metro became the first new high street bank to see a UK launch in 150 years. It garnered huge praise for its customer-first approach: with British call centres and some branches open 12 hours a day, seven days a week.
Metro Bank has continued to win awards from the likes of Interactive Investor’s Moneywise for customer service and even for the quality of its mobile app. The Competition and Markets Authority rated it second-best in the UK for business current accounts.
2020 results from independent business banking group BVA put Metro in the top two positions for overall service quality, online and mobile banking, small business relationship management, and branch provision.
In truth, this is remarkable fortitude and commitment to customer service, especially given everything else that has happened.
The bank has not enjoyed the same headlines as newer digital-only rivals and its buzz has been superseded by newer digital-only rivals since listing. The likes of Revolut, Monzo and Starling are hoovering up millions of customers from legacy banks like Lloyds (LSE:LLOY) and Barclays (LSE:BARC).
In fact, research from Accenture suggests that mobile-first banks operating in the UK could double their user base to take on 35 million new customers globally in the next 12 months. It reported that in the first six months of 2019, five million people opened new accounts with digital-only banks. The same research predicted growth rates of just 1% for the FTSE 100 banking giants in 2020.
Rumours of a possible takeover bid by Lloyds in November 2019 saw Metro’s share price gain 65% to around 265p. With no bid announced since, sentiment has turned against the FTSE 250 challenger and shares are now in the 192p range. Takeover talk is cheap, and common.
No accounting for taste
It is impossible to report on Metro Bank without mentioning the massive accounting error that sunk co-founder and previous chairman Vernon Hill.
Hill finally exited as non-executive director on 17 December 2019 after vacating the chairman’s seat. The failure to accurately rate commercial loans in January 2019 was followed by news of an 84% drop in pre-tax profits in the first half of the year.
Metro did succeed with a £350 million debt issue in October 2019, but only on the condition that Hill would step down.
Customers withdrew around £2 billion after a raft of negative headlines and that has hurt the bank, as evidenced by its last public trading update.
Where we are now
Metro Bank’s set of Q3 results announced on 23 October 2019 were not particularly good. Underlying earnings per share fell 80% to 6.3p. In the nine months to 30 September 2019 the bank realised a pre-tax loss of £3.3 million down from a £34.3 million profit in the nine months to 30 September 2018. Elsewhere, assets and loans were down a couple of percent from the previous quarter.
On a more positive note, however, deposits recovered by 4% to grow by £528 million, while 106,000 new customer accounts took Metro’s total clientbase to 1.9 million.
At current count, shares are trading at a very low trailing price to earnings ratio of 4.95. This suggests the bank does not enjoy the confidence of the market. Not yet at least.
Could there be a turnaround play here? If I am honest, I am wavering on my previous outright dismissal of Metro Bank.
The shares do have a devoted army of followers who will attack any negative news, which makes me very wary. Likewise, finding the bottom is a very difficult job. Previous expectations that the share price had bottomed out and was due a bullish rise have not come to fruition.
Technical analysis suggests the shares are still a sell with the likelihood of more downside to come: the shares are priced well below the five-day short-term exponential moving average of 200.9p, and a massive distance away from the 200-day exponential moving average of 462.2p.
And yet: an RSI of 33 suggests the shares are approaching oversold territory. We are not there yet, though.
A long play would be fraught with risk. I know as investors we thrive on risk, but there are better-paying stocks out there for my capital, for now at least. That being said, I will keep an eye on the Metro share price – if it drops into the 180p range the challenger could become a contrarian buy.
